Part 1What is a rent ceiling and what are its effects if it is set above the equilibrium rent? Part 1A rent ceiling is _______. A. a price floor in the housing market B. the opportunity cost of renting an apartment C. a government regulation that makes it illegal to charge a rent higher than a specified level Your answer is correct.D. the mechanism that eliminates search activity in the market for low-income housing Part 2The graph shows a housing market with a rent ceiling of $900 a month. Draw a point that shows the rent and the quantity of units rented. Click toenlargegraphPart 3A rent ceiling set above the equilibrium rent _______. A. decreases the demand for housing B. increases the supply of housing C. is illegal D. is ineffective Part 1
0246810120200400600800100012001400Quantity (thousands of units per month)Rent (dollars per unit per month)7005Upper DDUpper SSRentRentceilingceiling Edit coordinates interactive graph Draw only the objects specified in the question.

Question

Part 1What is a rent ceiling and what are its effects if it is set above the equilibrium​ rent? Part 1A rent ceiling is​ _______. A. a price floor in the housing market B. the opportunity cost of renting an apartment C. a government regulation that makes it illegal to charge a rent higher than a specified level Your answer is correct.D. the mechanism that eliminates search activity in the market for​ low-income housing Part 2The graph shows a housing market with a rent ceiling of​ $900 a month. Draw a point that shows the rent and the quantity of units rented. Click toenlargegraphPart 3A rent ceiling set above the equilibrium rent​ _______. A. decreases the demand for housing B. increases the supply of housing C. is illegal D. is ineffective Part 1
0246810120200400600800100012001400Quantity (thousands of units per month)Rent (dollars per unit per month)7005Upper DDUpper SSRentRentceilingceiling Edit coordinates interactive graph​>>> Draw only the objects specified in the question.

BlackTom AI · Accepted Answer

The question presents multiple-choice items about rent ceilings in housing markets, and provides the answer options for each item.
Option A: 'A price floor in the housing market'—This is incorrect conceptually because a rent ceiling is a maximum allowable rent, not a minimum, so it functions as a price ceiling, not a price floor. A price floor would be a rule preventing rents from falling below a certain level, whereas a ceiling sets an upper bound. Misunderstanding the distinction between floor and ceiling is the likely source of this error.
Option B: 'the opportunity cost of renting an apartment'—This option misidentifies what a rent ceiling represents. The opportunity cost of renting a particular apartment is a personal financial consideration faced by a consumer, not a regulatory rule that binds price in the housing market. Therefore, it does not describe the policy instrument itself.
Option C: 'a government regulation that makes it illegal to charge a rent higher than a specified level'—This is the definition of a rent ceiling: a cap on rents set by the government. It explicitly imposes a legal maximum on what can be charged for rent, which aligns with standard economic definitions and with the idea of a mandated price limit.
Option D: 'the mechanism that eliminates search activity in the market for low-income housing'—This statement confuses the policy goal with a behavioral outcome. A rent ceiling does not necessarily eliminate search activity; in fact, it can create search frictions and shortages. The ceiling regulates price but does not by itself directly 'eliminate search' in the housing market, so this option is incorrect.

Now turning to Part 3 of the prompt, which asks about a rent ceiling set above the equilibrium rent. 
Option A: 'decreases the demand for housing'—A rent ceiling above equilibrium does not change demand; demand depends on price and other factors. Since the price is above the ceiling (which is above equilibrium), consumers are not getting a binding constraint, so demand behavior is not reduced by the policy itself. This statement is not accurate.
Option B: 'increases the supply of housing'—Similarly, a ceiling above equilibrium is not binding on producers; it does not incentivize more supply. Supply decisions respond to prices and costs, and if the ceiling is above equilibrium, the legal constraint is not binding, so supply is not driven higher by the policy.
Option C: 'is illegal'—Rents ceilings set above equilibrium are not illegal; they are simply non-binding. The policy exists and is not itself illegal; it just doesn't affect the market because the market price would be below or at the ceiling anyway.
Option D: 'is ineffective'—This is the correct characterization. A rent ceiling above the equilibrium rent is non-binding; it has no effect on the market outcome because the market price would settle below that ceiling even without the regulation. Hence, it is ineffective at altering quantities or rents in practice.

If you connect these ideas, the reasoning for Part 1 hinges on the definition of the instrument itself (a government regulation setting a maximum rent), while Part 3 hinges on whether a ceiling above equilibrium binds the market (it does not), which is why that option is described as ineffective. The contrast between the correct interpretation of the instrument (price cap) and the misinterpretations about floors, opportunity costs, or elimination of search helps clarify common misconceptions about rent controls.

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